Limitation, Payment Notices and Adjudication - Court Case Review

Court Case Review of LJR Interiors Ltd v Cooper Construction Ltd [2023] EWHC 3339 (TCC)

The High Court recently handed down judgment in the case of LJR Interiors Ltd ("LJR") v Cooper Construction Ltd ("Cooper") [2023] EWHC 3339 (TCC). The case provides us with a review of how Adjudication, interim payment and the Limitation Act 1980 interact with one another in law. Andrew Cullyer, Litigation Executive specialising in construction disputes, reviews the implications and basic principles this case sets out.

How this dispute reached the courts (overview)

Cooper contracted LJR to carry out various jobs, including dry lining, plastering, and screed works at a development property in Oxfordshire in 2014. LJR completed the work in October of that year and, in total, issued three payment applications to Cooper.

Fast forward to July 2022, LJR submitted a new payment application (No.4) in the same format and consistent with many of the same items as their third application (No.3) eight years prior. The new application totalled a relatively modest £3,256.58, but Cooper chose not to respond. 

After no response, LJR sought to adjudicate because they felt entitled to receive payment in full upon issuing their application. Cooper resisted on several grounds and claimed the application was out of time under s5 of the Limitation Act 1980 ("the Act"), which states the claim should have been submitted within six years.

The Adjudicator acknowledged the Act but felt it didn't apply because the breach was a failure to pay from an application issued in 2022. The Adjudicator also chose to avoid objecting to LJR's right to make the application in the first place, as there was no limitation in the Housing Grants Construction and Regeneration Act 1996 or in the Scheme for Construction Contracts on when a payment application could be made. The Adjudicator found in favour of LJR. Cooper disputed this finding, and LJR issued enforcement proceedings against Cooper, who resisted through a joined pt8 claim which Judge HHJ Russen KC reviewed in court.

What is the Limitation Act?

The relevant provisions of the Act are unclear in respect of Adjudications s5, as it states: "An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued." Further, s38(1) of the 1980 Act states that, unless the context otherwise requires, "action" includes any proceedings in a court of law, including an ecclesiastical court." 

After reviewing various authorities referred to him, the Judge concluded in paragraph 69: "In my judgment, the context does require the term "action" … to be read as including adjudication proceedings. … such proceedings are not expressly excluded … from the meaning of "action" by section 38(11) of the 1980 Act."

The Judge said if he was wrong about the relationship between Adjudication and the Act, the matter before him, a pt8 claim, was an "action." Therefore, the court was required to consider a limitation defence under the Act. This is an important but unsurprising clarification.

What is the correct period of Limitation?

The Judge summarised the Adjudicator's approach to this question in paragraph 76. They found the limitation period irrelevant as the Adjudicator only had to consider the application for payment on its face. The Judge dismissed this approach in paragraph 77, stating: 

"In my judgment, this was an erroneous approach. It paid no regard to the terms of the contract, as to when the right to payment of the balance sought by Application No. 4 accrued, and it appears to have assumed that the absence of a pay less notice (taking the limitation defence or any other objection to payment of that sum) meant that it was unnecessary to consider whether the application itself was timely enough."

The Judge then began a detailed analysis of whether the sums in LJR's most recent application were eligible or whether it was statue barred. He concluded to the extent that it was the same as application number three, which was made seven and a half years prior, and therefore was not in time. The claimed return of retention monies due six and a half years previously was also not in time.

There was an Administration charge that had not been raised previously concerning non-payment of monies under Application No. 3, which the court also said was time-barred. The correct period(s) of Limitation was decided to be six years from the final date for payment of application No.3 or six years after the due date for the return of the retention (i.e. 12 months after completion.)

Conclusion

It seems likely that the court arrived at the right outcome, and I doubt this judgment will surprise many familiar with construction law. However, I believe that both the Adjudicator and Judge may have been hampered when reviewing this case because of what the Judge said in paragraph 15: "My conclusions … should be read with the caution that they are largely the product of my own thoughts and therefore lack the firmer footings usually provided by full adversarial legal argument." This statement emphasises that there may be a few wrinkles in the case. 

There were potentially a few matters that could have been considered but weren't, and I have highlighted them below:

One point, in particular, is connected with the right (if any) to issue the application for payment eight years after the completion of work. The right to interim/final payment, as guaranteed by the Housing Grants Construction and Regeneration Act 1996 and the Scheme for Construction Contracts, does require a subsisting "construction contract". Could a construction contract still exist eight years after the work completed? Construction contracts do come to a natural end, and it appears that's what happened on this occasion. You could argue that the right to issue an interim application was lost when the contract ended. I cannot definitively say when this contract finished, but it's difficult to sustain that it existed when application No.4 was issued.

Another factor to consider is that retentions are often held on a form of trust. This is demonstrated in the approach in the JCT Forms, clause 4.16.1 of the 2016 Design and Build form. Trusts are not necessarily subject to s5 of the Act but rather, s21(1)(b). S21(1)(b) of the Act is in materially very different terms. If it did apply, it could have led to a very different result, but other defences may have been available, and other parts of the Limitation Act may apply. Unfortunately, the court did not have the opportunity to explore this point entirely.

Overall, the lesson from this case to me is clear: Issue your notices. All this cost, pain, and trouble could have been avoided had Cooper's responded to the application. They could have responded with a pay less notice, valuing the claim at £0.00, giving the reason (among others) as Limitation and then issue a pay less notice without prejudice to the fact they did not consider it a valid application. Although Cooper ultimately won, they could have achieved the same result for less expense and time. The moral of the story, issue your pay less notices.

If you are going through a similar experience or would like help with a construction court claim, please get in touch with Andrew Cullyer on 023 8063 9311 or email andrewcullyer@warnergoodman.co.uk.